Wall Street rallied this afternoon as better-than-expected growth in Chinese and US manufacturing sparked a revival in risk appetite, encouraging investors back into equities and growth-based commodities.
September kicked off to a good start after official reports from China showed manufacturing increased at a faster pace than economists had predicted. The Chinese Purchasing Managers Index rose to 51.7 in August, ahead of the median forecast of 51.5 that economists surveyed by Bloomberg had anticipated. Signs that the Chinese growth engine was still growing encouraged investors back into riskier assets and helped Wall Street open higher this afternoon.
Adding further fuel to the rally was the release of the Institute of Supply Management Manufacturing Index which unexpectedly rose to 56.3 in August from 55.5 the previous month. Economists had forecasted the index to drop to a reading of 52.8 following a series of weak regional manufacturing gauges released in the last month.
The manufacturing sector is largely seen as the sector that led the US economic recovery last year, so signs that this sector is still growing helps to restore confidence that the economy can continue to grow in the coming quarters, and hopefully, add more jobs in the process.
The positive momentum gained from the manufacturing data outweighed weakness shown in the US labour market. The ADP Employment Report, which aims to track the changes in private sector employment in the US, showed a surprise drop in the number of new hires for August.
An estimated 10,000 jobs were lost in the private sector, which went against the median estimate of 15,000 extra jobs that economists surveyed by Bloomberg were expecting. Official payroll figures will be released this Friday where expectations are for non-farm payrolls to drop by 100,000 and the headline unemployment rate to increase from 9.5% to 9.6%.
By 4pm (London time) all 30 Dow Jones constituents were trading above their previous close, lead by industrial bellwethers Caterpillar (+4.57%) and General Electric (+3.31%). The Dow Jones Industrial Average index added 245.44 points (+2.39%) to 10260.16, the S&P 500 advanced 28.93 points (+2.68%) to 1078.26, while the Nasdaq 100 composite gained 55.39 points (+3.04%) to 1822.82.
Looking for FX spread betting, the US Dollar Index, which tracks the value of the US dollar against a basket of major currencies, fell 1.13% over improved risk sentiment. The Aussie dollar was the strongest gainer against the US dollar today, rising 1.55% to $0.9060.
AUD/USD rose after the Australian economy grew faster than anticipated in the previous quarter, while better-than-expected growth in China’s manufacturing sector also boded well for the Australian economy. The euro gained 1.17% against the US dollar to trade at $1.2835 after the Chinese Prime Minister announced the global economy should support the euro, suggesting that China will continue to purchase Spanish government bonds.
The weaker US dollar helped propel oil above $76 a barrel, while copper advanced 3.21% to $3.4690 an ounce off the back of improved Chinese manufacturing data. This saw resource stocks rally with Alcoa and Chevron rising 2.67% and 3.16% respectively on the Dow Jones Industrial Average, while Cliffs Natural Resources and Massey Energy Company gained 6.14% and 7.89% respectively on the S&P 500.
In gold spread betting, the metal reached a two-month high of $1,255.05 but pared most of the gains to trade at $1,243.30 by late afternoon as the yellow metal lost its safe-haven appeal and short-term profit-takers swooped in.
Later tonight, Apple will be holding an event at 6pm (London time) where it is expected that they will launch the next generation iTouch and iPod. There have also been suggestions that Apple will be revamping its Apple TV product to penetrate the pay-per view TV market. Shares in Apple were last trading 3% higher at $250.40.
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'Spread Betting News 1 Sep 2010', Article by IG Index, last update: 1-Sep-10
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